Spoting Smart Money Levels

Video Transcription:

Hello, traders. Welcome to the Pro Trading Course and the seventh module Trading Like a Pro. In this lesson, we are going to learn how to spark smart money levels. And I’m going to start by defining what smart money is. Smart money is cash invested by those considered to be experienced and well-informed. There is no empirical evidence to support the notion that smart money trades perform better than non-smart money trades. But the main reason we need to look at these levels is because, typically, insiders and better-informed traders invest much, much more money.

So basically, what I’m saying here is that what we are going to learn in this lesson is how to spot on your charts the levels that big banks are looking at or the levels that hedge funds are looking at and where to find those orders or those big orders. This means that if you are able to spot these levels in your charts, you can use it to support your trade ideas or to find high probability setups. And the main reason that you are going to have high probability setups on those areas is because there is going to be big volume trading on those zones. So there’s going to be a lot of fight between buyers and sellers. And if we have a bounce of that level, well, the rejection is confirmed. But if we break through those orders, then you know that a continuation is due. This is why. Because you know there are going to be big orders at those levels, you will be able to see with price action and precision if the level holds and a bounce trade is due and if the level breaks and a continuation trade is due.

Now, we’re going to go to the charts, and I’m going to show you how to look for these levels. Okay, so here we are on the U.S. dollar/Canadian dollar chart that we have been looking at on this module. And I’m going to show you where big money levels are in this chart and how to find them. Well, when price moves very fast in one direction, this means that the volume is low, all right? There is big volatility because the volume is low. You need to understand the difference between volatility and volume. When there is volume and when there is big volume, you are going to see a very choppy market, all right? And the reason you are going to see a very choppy market is because you’re going to find a lot of buyers and a lot of sellers in that area. Now, when volume spikes to one side of the market, you are going to see these big drops or this big move to the upside, okay? And that is when a level has broken.

So if we go back, for example, we can see that right here we had a struggle. And then buyers tried to push price up. And they finally did. And this is when the sellers gave up and all the buyers came into the market. So what we’re going to do to find big money levels is we are going to find the previous bases. And we do have one here, okay? And as you can see, it aligns perfectly with a previous level. Now, I’m going to put a [inaudible 00:03:27] rectangle just to highlight the area that I’m talking about. Here, you are going to have a lot of sell orders. So this buy trade is going to have to be managed very carefully. Why? Because if we actually bounce to the upside, we are going to find a lot of sellers at this area. And this means that, well, we are going to have to manage our trade efficiently. This means that we are going to have to take some profit out if it bounces to the upside and move our stops to break even. But that is trade management and trade efficiency lessons. What I’m doing here is trying to show you where big money is going to be stepping in. Not only this, but big money is always going to be stepping in where previous levels have been tested.

So right here, you can see that we have a low, and then we broke to the downside. You can see that right here we had a lot of bear pressure and then we had a lot of struggle in price, okay? This struggle tells you that there were a lot of buyers here that moved price up. But they were unable to sustain price at these levels. And then eventually we broke to the downside. And right here, we retested this zone.

So what we’re going to do here actually is look at this area. And this is the big money areas on the U.S. dollar/Canadian dollar. Now, what I’m going to do here is I’m going to show you the real volume traded in these zones by using the market profile. Okay, so here you go, and here you have actually the market profile. What the market profile tells you … Well, the market profile is this histogram that you can see on my chart. And the bigger the histogram, the more volume was traded on that zone, all right? So what you’re going to do here is you’re going to look at this market profile. And you can see that we have a point of control, which is the level where the most volume was traded at on the last session, at 29.84, right in the middle of the peach zone that we highlighted with this rectangle, all right? Not only that, if you go two sessions before, you can see that right here we also had a lot of volume. So this is a very strong zone that we need to start to look at. And as you can see here, volume is starting to increase right here in this area where we have a long position.

Now, if you go further up, you can see that this zone that we marked with another peach rectangle is also a high volume zone, all right? We traded highly here and then not so highly here, but the volume was very high all throughout the session. So basically, what we have here is our own interpretation of the market profile via price action. Now, I’m going to eliminate this indicator, and I’m going to show you another zone that might be tested heavily. And this is the middle zone between the high and the low of the range. The reason the middle zone is important is because this is going to be our bull and bear barrier if we manage to break above, all right? Now, if we manage to break above this zone, this is going to be our bull and bear zone. And if we go ahead and use the market profile again, you can see that on the previous session, this is where the most volume was traded, right at the point of control, 30.77, and we have the mid or the bull/bear zone at a few pips above it.

So if you like, you can use the market profile on your charts to look or to spot big money levels. But if you don’t have the market profile indicator, well, you can use price action as I’ve taught you on this lesson.

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